When you are ready to invest in your first vehicle, an important decision to make is whether to buy or lease. With car leasing becoming a more popular option for new drivers, many in Australia are turning to lease rather than buying options to get behind the wheel of a new car.
If you’re having difficulty deciding which option is best for your individual situation, we break down the pros of each.
How does leasing work?
Unlike the traditional buying option route where the car is financed through the traditional personal loan or hire purchase, leasing means you only make monthly payments for the length of the lease term. Similar to renting a car, leasing a car is for a period of time, usually two to five years.
While there are no strings attached to this format of car ownership, certain requirements must be met according to the type of leasing package. One example is a mileage charge. If you go over the specified number of miles as outlined in your leasing agreement, you will be assessed an additional fee.
Certain leasing packages will also provide the option of buying the car at the end of the lease period.
Benefits of leasing
As you’re borrowing a car for a specific period, one of the main benefits of leasing is the ability to upgrade your vehicle at the end of every lease period. There is also less upfront cost required to obtain a vehicle and lower monthly payments.
When you lease, you’re afforded greater access to the latest new vehicles. This means that there are less wear and tear, resulting in a safer, more reliable vehicle.
You also get to save on repairs or maintenance, even if issues do arise. Most vehicles that are leased are covered by the manufacturer’s warranty. This means that if repairs need to be carried out, the manufacturer will foot the bill.
Benefits of buying
Buying a car outright is the traditional route to car ownership. The advantages of owning a vehicle rather than leasing are numerous. Such benefits include:
- No mileage restrictions
- The ability to customize vehicles as desired
- Full ownership of the vehicle
- No monthly payments after the loan or buying outright
- No risk of lease-end charges
The ability to do what you want with your vehicle is one of the biggest draws of buying a car. If it’s a make and model you like, you can drive it to your heart’s content for years and years. This will help spread out the costs of car ownership, making ownership costs more manageable.
Determining the right ownership option for you
The decision to lease or buy a car should be influenced by several factors. Your financial and individual needs will help guide your decision-making process to determine the best option for you.
When deciding whether to lease or buy a car, the questions below may help inform your decision.
- Will the car be used for business or personal use?
In Australia, if the car is for business purposes, leasing may be worth looking at.
The option of novated leasing makes leasing a great way to purchase a new car. As a three-way financial agreement between you, your employer, and a finance company, the perks of a novated lease include saving on taxes, a comprehensive budget for higher disposable income, and paying less for a new car.
A car for personal use may not benefit from such a leasing option. In such cases, it may be best to buy the car outright.
Is this your first car?
If this is your second car purchase, opportunities may arise to take advantage of trade-in offers. You may also be able to sell your current car to help finance your new car purchase or save on upfront leasing costs.
How often do you drive?
This may be a determining factor as leasing has mileage restrictions that may pose a drawback. If you’re drawn to the open road or drive a great deal, then purchasing a car may be the best choice for you.
What is your credit history like?
Another important factor, your credit history will determine whether or not you’ll get favorable car loan rates. Those with a bad or limited credit history may find it difficult to meet the credit qualifications to obtain a lease.
You may come across similar problems if you decide to buy a car. Obtaining a secured car loan may help offset any negative marks on your credit history. This will give you a better chance of being approved for a car whether you choose to buy or lease.
Finding the right option for you
Whether you choose to lease or buy, carefully do your research to consider the most reasonable solution for your individual situation. Take into account your own needs and preferences when considering the factors listed above. This will ensure you pick the right solution for you.
Rob Chaloner is the Founder and Managing Director of Stratton and is passionate about smarter ways to buy and finance cars. With Stratton, he’s working to help Australian buyers disrupt the traditional car buying, financing and insurance markets through smarter products and online services.